bitcoin (BTC) has had a bumpy ride throughout 2022, along with the rest of the digital asset market. The cryptocurrency started the year changing hands around $46,700 and is currently trading up over 64% at $16,560 at the time of writing. Consequently, the market capitalization of the coin dropped by around $900 billion on January 1. 1, 2022 to end the year at around $320 billion.
Although Bitcoin’s price drop can be attributed to the extraordinary circumstances the entire cryptocurrency market has been going through this year, it is important to re-evaluate the 2022 price predictions made by various market entities. One of the most popular predictions was from analyst PlanB’s Bitcoin Stock-to-Flow (S2F) model.
The S2F model predicted BTC to be near $110,000 in December 2022. The cryptocurrency ended the year trading nearly 85% of target, raising questions about the validity of the model. of price. Stock-flow models are typically used to value commodities in traditional markets because they take into account two variables related to an asset: stock and flow. “Stock” refers to the total existing supply of the asset, and “flow” refers to the new supply of the asset created each year.
Antoni Trenchev, co-founder and managing partner of Nexo – a digital asset management platform – shared with Cointelegraph his thoughts on the validity of the S2F prediction model:
“Many factors can influence the price of Bitcoin, including market demand, regulatory changes, and technological developments. The S2F model is a tool that can be used to make projections about the future price of Bitcoin, but it is important to keep in mind that it is based on certain assumptions and is not a definitive guide for coming.
Besides S2F, other models have been used in an attempt to predict the price of Bitcoin in the near and distant future. Two of the most popular are Elliott Wave Theory and Hyperwave Theory. Although both also have their roots in traditional financial markets, their success in predicting the price of BTC has also been relatively limited.
Price Patterns Fail as New Year for Bitcoin Inaugurations
Considering Bitcoin only began its journey as an asset a little over a decade ago, it’s safe to say that the cryptocurrency is still in its early stages of price discovery compared to commodities like gold or silver and other high-tech stocks like Apple and Microsoft. . . So, while there are various BTC price predictions, it is essential to remember the limited availability of cyclical data to factor into these patterns.
Trenchev added that there are many different models and approaches that can be used to try to predict the price of Bitcoin. Some people use technical analysis, which is the study of historical price and volume data to identify patterns and trends. Others use fundamental analysis, which involves evaluating the underlying factors that may affect the demand and supply of an asset. No single model or approach is universally considered the most reliable for predicting the price of Bitcoin, and it is crucial to consider a range of factors when making any investment decision.
Related: The Three Most Controversial Bitcoin Price Patterns and What They Predict
Alex McCurry, CEO and co-founder of blockchain solutions provider Solidity.io, agrees with Trenchev, telling Cointelegraph, “Bitcoin is a completely unpredictable asset. The only thing that can be certain about Bitcoin is the underlying intrinsic value of the Bitcoin network and the value it presents to holders and investors. For this reason, one can predict long-term adoption and value in the macroeconomic climate over time, but it is impossible to perfectly calculate an exact price.
However, one important aspect could change Bitcoin price trends: utility.
Since Bitcoin is not a smart contract-enabled network, the usefulness of the asset has been limited to a payment rail. This is slowly starting to change, with Bitcoin now finding more utility than ever before, supported by the Lightning Network.
LN is a Layer 2 payment protocol built on top of the Bitcoin network that enables fast and transparent peer-to-peer transactions. This helps to significantly improve network scalability. More recently, Michael Saylor’s MicroStrategy announced that it plans to launch Lightning Network software and solutions in 2023.
MicroStrategy too Keeps adding Bitcoin to its treasury. Between November. 1 and Dec. On December 21, 2022, the company acquired 2,395 BTC at an average price of $17,181 for a total of $42.8 million. For tax reasons, he sold 704 BTC at $16,776 per coin for a total of $11.8 million on December 1. 22. As a redemption, the company purchased 810 BTC on December 1. 24 for $13.6 million in cash. According to Data of BitcoinTreasuries, this brings the company’s holdings to 132,500 BTC, worth around $2.2 billion at the time of writing.
Global Investment Manager VanEck released 11 crypto predictions for 2023, among which he claimed that BTC will fall to $10,000-$12,000 in Q1 “amid a wave of miner bankruptcies” and rebound as high as $30,000 in H2 2023.
McCurry agreed with this prediction, stating, “I believe Bitcoin will rebound in 2023, and I believe that by 2024 Bitcoin will hit a new all-time high significantly above the 2021 peak of $69,000.”
Trenchev added, “It is possible for Bitcoin price to rebound to $30,000 in the second half of 2023, but it is also important to keep in mind that Bitcoin price is highly volatile and can be affected by a wide range. of factors. .” .”
Derivatives market and BTC price discovery
Despite the unpredictable and volatile nature of Bitcoin’s price, the asset’s derivatives market is an important indicator of its current and future sentiment.
According to Data from Coinglass, the Bitcoin futures market currently has an open interest (OI) of over $9 billion. At the same time, the bitcoin options market open interest stalls at $3.4 billion, with over 76% OI on cryptocurrency derivatives exchange Deribit.
Luuk Strijers, Chief Commercial Officer of Deribit, spoke to Cointelegraph about what options data for 2023 reveals about market price sentiment for Bitcoin. He said:
“The overall put-to-call ratio for June 2023 is 0.24, which is rather low. This generally implies bullish sentiment, as there are three times as many calls in progress as there are puts. The maximum pain is $19,000 which also shows upside potential Investors are positioning themselves on the larger strikes ($20,000, $25,000 and $30,000) The premium for the larger strikes is obviously much lower , so these could be viewed as an upside bet, or used for yield generation by call sellers.
The max-pain price is the price at which the greatest number of options are in loss. Strijers also added that “Since the FTX implosion, investors seem to be on the sidelines, waiting for industry news, but also macro news. We have seen new lows in implied volatilities, and the short term is currently trading in the low 30s, we have even seen dailies trading below 30%, at the same time liquidity is currently below normal.
Market uncertainty aside, upcoming regulations in 2023 i.e. European Union regulations Crypto Asset Markets Bill and the US Lummis-Gillibrand and Warren-Marshall bills – could bring stability to the market, as investors who believe the space benefits from greater scrutiny are likely to feel more confident.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
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